The new British Chancellor's debut does not cause a stir: the pound shows a three-way split, and the market awaits direction from the October budget proposal.

On Monday, UK Chancellor of the Exchequer John Healy delivered his first significant speech since taking office, promising to continue his predecessor's path of fiscal restraint, prioritize economic growth, and emphasize adherence to fiscal rules in the upcoming budget on October 28. However, this speech did not provide a clear direction for the pound: it rose slightly against the dollar, remained stable against the euro, but plummeted against the yen to its lowest level since February. Investors are gradually shifting their focus to next month's budget, observing how Healy balances Prime Minister Andy Burnham's expansionist ambitions with fiscal discipline. During the trading session on Monday, the pound rose 0.1% against the dollar to 1.3536; it was quoted at 0.8588 against the euro, strengthening slightly from the previous trading day. The pound fell 0.7% against the yen to 209.16, marking its lowest level since February this year. The yen strengthened overall that day, emerging as a significant theme in the forex market. Analysts believe multiple factors are driving the yen's strength, including potential capital inflows, investors unwinding yen carry trades, political pressure in the U.S., and rising expectations that the Bank of Japan might accelerate its rate hike pace. In August, the yen hit a 19-year low against the pound and briefly fell to a 40-year low against the dollar, but its recent trend has shown a clear reversal. On Monday, the dollar weakened overall against most major currencies, and the pound's rise against the dollar was largely due to the dollar's decline rather than strong momentum from the pound itself. Nevertheless, the pound's rebound at least temporarily halted part of its recent losses against the euro and the dollar. Barclays analysts attributed the pound's earlier weakness to pressures from rising global yields and investors initially refocusing on the October budget. As the October 28 budget approaches, investors hope to see how Healy will advance Burnham's ambitions in housing construction, social care, and defense while maintaining fiscal discipline. The bank stated, "The calm period in August is coming to an end, and the market's scrutiny of UK policy and fundamentals will deepen, with the pound's risk-reward shifting moderately towards the downside." Healy stressed fiscal discipline: "in step with the Prime Minister" Speaking at a manufacturing center in Coventry, central England, Healy remarked that fiscal discipline "underpins every commitment made by this government." He stated that growth is his top priority and emphasized that "the Prime Minister and I are aligned in adhering to fiscal rules in the upcoming budget." This statement comes against the backdrop of the U.S.-Iran conflict triggering a global bond sell-off and British borrowing costs rising to decades-high levels. Recently, UK government bond yields have increased, tied to both inflation expectations driven by the conflict and uncertainties surrounding new Prime Minister Burnham's spending plans. This is eroding the UK's fiscal buffer and raising market expectations for possible tax increases in Healy's budget next month. This speech also highlights the real dilemma facing the Burnham-Healy government: Healy needs to balance Burnham's transformative commitments with investor caution. Burnham has promised voters "transformational change," while Healy is trying to signal a continuation of the cautious approach adopted by former Chancellor Rachel Reeves and former Prime Minister Keir Starmer. Healy stated that he and Burnham are aligned in "balancing the accounts and leaving a buffer to withstand uncertainty, controlling borrowing to reduce inflation, and alleviating long-term pressure on public finances." However, he declined to comment on tax increases, deferring such matters to the budget presentation on October 28. Although the new Chancellor initially aimed to deliver an optimistic, relatively low-key pre-budget speech focused on relieving cost-of-living pressures, lowering business costs, and outlining Burnham's key "devolution" agenda, the deteriorating market environment prompted the Treasury to adjust its external communication tone. Healy warned on Monday that the current world is "increasingly dangerous and uncertain," "putting pressure on the UK." He stated, "This makes our government's task more challenging and makes it harder for every business seeking investment." Like his predecessor Reeves, Healy believes that a path to sustainable public finances lies in stronger economic growth and has listed it as a top priority. However, the Treasury is acutely aware that, despite Reeves' efforts, during her tenure, UK government bonds have once again started trading at a premium compared to similar U.S. and German bonds. Healy indicated that growth will come from decentralizing political and economic power from Whitehall and Westminster. He announced plans to grant cities greater powers to attract private investment, which is part of Burnham's push for devolution from the central government. However, the core concept of placing more economic sectors under "public control" as proposed by Burnham still lacks specific details. The challenges Healy faces in terms of growth were underscored on Monday as Jaguar Land Rover announced plans to cut up to 4,000 jobs, a few miles from where Healy was speaking. Healy declined to answer journalists' questions regarding the difficulties facing the UK's largest car manufacturer. Burnham has made transferring political and economic power from Westminster a key commitment during his premiership, which includes giving mayors more control and managing local economic policy from the new base in Manchester, dubbed North Downing Street. Messages to businesses and investment tools Addressing businesses that have been burdened by higher payroll taxes under previous policies, Healy remarked, "I recognize that since the pandemic, business costs, energy bills, regulatory burdens, planning restrictions, and labor costs have all risen, and I want to draw a line." He added, "Whether its business costs or living costs, the only way to deal with these issues in the long term is through growth." Healy also committed to leveraging public financial institutions such as the National Wealth Fund and the British Business Bank to attract more private investment across regions. Under the UK's fiscal rules, investment borrowing through these public financial institutions does not count towards the requirement for "debt as a proportion of the economy to decline by 2029/30" because these loans are considered offsetting financial assets. Therefore, the main impact on fiscal rules is related to the debt service costs of additional borrowing. In his speech, Healy also announced several specific measures: extending reforms that limit judicial review in the energy sector to all major infrastructure projects to prevent "unreasonable lawsuits and challenges hindering economic growth"; committing to reduce business regulatory burdens by 25% before the end of this Parliament in mid-2029; reiterating permission for local governments to retain more local income tax revenue and stating that a roadmap for fiscal devolution will be established in next month's budget; stating that addressing youth unemployment is a "moral and fiscal responsibility," with a commitment to provide more technical education tailored to local business needs; indicating that public procurement will be used "as a strategic tool to ensure greater public sector support for UK businesses"; setting a target to double the number of UK "unicorn" companies and making the state an early customer; and announcing a reduction in the discount rate for assessing the feasibility of long-term infrastructure projects from 3.5% to 3%. A lower discount rate allows more project value to be reflected earlier in government accounts, thus making significant infrastructure projects easier to assess.